Stocks rebound as Fed signals low interest rates are here to stay

Spencer Platt/Getty ImagesWall Street has posted gains this morning despite report that the number of people seeking unemployment benefits grew last week.

U.S. stocks rose, sending the Standard & Poor’s 500 Index higher for a second day, as policymakers’ indications that interest rates will remain low overshadowed a disappointing jobless claims report.

Google Inc., owner of the most popular Web search engine, added 1.1 percent ahead of its results. Hewlett-Packard Co. rallied 4.7 percent, pacing gains in technology companies, as the global personal-computer industry unexpectedly grew in the first quarter. AT&T Inc. rose 0.9 percent as JPMorgan Chase & Co. raised its rating for the shares. McKesson Corp. jumped 5 percent after winning a drug supply contract valued at as much as $31.6 billion over as many as eight years.

The S&P 500 added 0.6 percent to 1,376.61 at 9:54 a.m. New York time. The benchmark gauge yesterday snapped the longest losing streak since November. The Dow Jones Industrial Average rose 71.90 points, or 0.6 percent, to 12,877.29.

“There’s a mix here,” said Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co. “The jobless claims figures were not quite what we were looking for. Meantime, while some of the Fed’s comments have reinforced the idea that interest rates will stay low, they are not jumping out and saying that they will do more.”

Equities rose after Federal Reserve Vice Chairman Janet Yellen and Fed Bank of New York President William C. Dudley endorsed the central bank’s view that borrowing costs are likely to stay low through 2014. The comments offset investors’ disappointment after data showed that more Americans than forecast filed claims for jobless benefits last week, a sign the pace of improvement in the labor market is slowing.

Earnings Season

Stocks yesterday halted a five-day drop as Alcoa Inc. reported an unexpected first-quarter profit. While S&P 500 per- share profit growth slowed to 0.8 percent during the first three months of the year from 4.9 percent in the fourth quarter, it will accelerate to 8.3 percent during all of 2012, according to analyst estimates compiled by Bloomberg.

Google, which is scheduled to report first-quarter results after the market close, added 1.1 percent to $642.83. On average, the analysts surveyed by Bloomberg estimate earnings of $9.64, a 19 percent growth from the same period a year earlier.

Shareholders are urging Google to take a page from Apple Inc. and return part of its $44.6 billion in cash to investors. Google has more cash as a percentage of market value than five of its largest peers, including Apple, which reinstated a dividend and unveiled a $10 billion stock buyback last month. Google’s cash has almost doubled since 2009, and it is the only U.S. technology company with a market value of more than $125 billion that doesn’t offer a regular shareholder payout.

‘Victory Dance’

“I’m sure Google will figure out the right thing to do,” said Michael Holland, chairman of Holland & Co., a New York investment firm that oversees more than $4 billion in assets, including Google shares. “It’s a little bit of a victory dance, if you will, to be able to have the sort of cash surplus that a company like Apple does and Google does.”

Hewlett-Packard rallied 4.7 percent to $24.52 on indications the PC market is shaking off the effects of Europe’s debt crisis and a disk-drive shortage stemming from last year’s flooding in Thailand. PC shipments climbed 1.9 percent to 89 million units, compared with predictions for a 1.2 percent drop, according to Stamford, Connecticut-based Gartner Inc. Another research firm, IDC, also reported a surprise increase for the quarter.

AT&T gained 0.9 percent to $30.72 after the company’s shares were raised to the equivalent of buy at JPMorgan. The 9- month share-price estimate is $33.

Most Lucrative

McKesson rallied 5 percent to $92.25. The company held onto one of the U.S. government’s most lucrative non-defense contracts, overcoming protests by small drug distributors and competing bids by AmerisourceBergen Corp. and Cardinal Health Inc. The victory maintains McKesson’s grip on the agreement, which has generated as much as $27 billion in orders since 2004.

The retreat in the S&P 500 may not be over, as a gauge of bullishness reached levels that coincided with the market’s peak in 2007 and preceded the biggest pullback in both of the last two years.

The Consensus Bullish Sentiment index on stocks, based on a weekly survey of brokerage strategists and newsletter writers, exceeded 75 percent for seven weeks through April 3, the longest streak since Kansas City, Missouri-based Consensus Inc. began compiling the data in 1983. The index fell to 69 percent this week as the S&P 500 had the worst five-day drop since November amid concern the recovery in the American labor market is slowing and Europe’s debt crisis is worsening.

Best Since 1998

Optimism has grown as the S&P 500 finished its best first- quarter rally since 1998, bolstered by better-than-expected economic data and corporate earnings. Increasing bullishness is considered a contrarian indicator by some analysts who follow price charts to make market predictions, because investors who have bought shares now have less money to purchase stocks.

“We’re concerned at what we view as very complacent bullish sentiment, almost frothy, and it needs to be unwound,” John Kattar, chief investment officer at Eastern Investment Advisors in Boston, which manages $1.7 billion, said in a telephone interview. “We should see some fear creeping back into the market, but we’re a long way from that happening yet.”